Secured Credit Card - Choosing A Secured Credit Card
By Mory Brenner, Esq.
Q. Isn't every secured credit card just like another?
A. To the extent that every car is just like another, they all operate using the same format and most get you where you need to go, but how they perform and the comfort they might provide you vary greatly.
Q. So what kinds of things might make one secured credit card better than another?
A. Start with what it takes to get a secured credit card. Some banks might want a $500 minimum deposit to start an account, others even $1000, while some banks require only $200.
Q. If I planned to open an account with $1000 why does that matter?
A. In that case there may be no distinction, but for those who only have $200 or $300 to start a secured credit card account it might make the difference between obtaining a secured credit card and going without one.
Q. Are there other financial disparities?
A. Yes, start with the annual fee. Most secured credit cards require an annual fee. Most annual fees on secured cards run between $50 and $75 per year, so you should watch out for this, but in this range you may not use this as a big factor to either select or eliminate a particular secured credit card.
Q. So the secured credit card annual fee does not matter?
A. No, I'm saying if it's in that range it may not matter. Make sure the fee is not higher and beware of the cards with zero annual fees as most of those have some sort of start up fee instead. That may of may not be better depending on the fees and how long you plan to keep the card. Just don't jump at the card with no annual fee before taking a closer look, you may find even more fees disguised with other names.
Q. Like what kind of fees should a consumer look out for where looking for a secured credit card?
A. Look for monthly fees or other periodic maintenance fees. Other than the annual fee avoid initial processing fees or application fees. The better secured credit cards demand no such fees.
Q. What other fee should I expect to pay?
A. Even the best secured credit cards have some fees in addition to the annual fees, but you may never pay them depending on how you use the card. Avoidable fees may include late fees, over limit fees, cash advance fees, international transaction fees and of course finance charges or interest.
Q. Let's talk about interest more, how much should I look at who offers the best rate?
A. You need to look at several items when it comes to secured credit card interest. The rate certainly come into play and let's not minimize the importance of the interest rate. At the same time be sure to look at any grace period offered to the consumer before interest begins to accrue and examine how you plan to use the card and make payments.
Q. Can you give me some examples of how that works and who would care?
A. Take two people who buy something and pay in full when the statement comes. The person with no grace period pays interest for the days between the purchase and the payment. If the other person has a 30 day grace period and they pay with the 30 days and they maintain no outstanding balance they may pay no interest. Take two other people who leave balances on their account from month to month, they will both see interest fees. If you plan to pay in full every month the grace period could rate top importance, for someone planning to run a balance the interest rate could top your list. If you plan to use the card so lightly that neither the interest rate nor the grace period matter you might concentrate more on annual fees or other details.
Q. Should I make a big chart of all of the fees and make a big comparision before I select a secured credit card?
A. Probably not, the better cards tend to stand out fast. The secured credit card with the extra fees and high fees most likely emerges as the one with the highest interest rate too. By looking at the fees and interest you should be able to separate the better cards for the consumer from the unfriendly secure credit cards. For more in interest rates read the secured credit card everyday use and payment FAQ.
Q. Once I have things narrowed down to a few secured credit cards that seem consumer friendly what kinds of things should I look for to narrow down my choices?
A. One thing you might wish to take a look at involves the type of credit card. Most United States cards offer either a MasterCard or Visa. Many people think of those as exactly the same. In the US that might be tough to dispute, but if you plan on ever going out of the country you could find many spots that only accept either MasterCard or Visa but not both.
Q. So which works best between MasterCard or Visa?
A. Let them fight between who wins the title of "Best". I would look at it from where you start from. If you already have one card, get the other. If you have neither you might want both. Just be sure you get one or the other and watch out for credit cards with neither. Some cards with neither MasterCard nor Visa associations only allow you to charge goods from their own overpriced catalogue, avoid those like the plague.
Q. Should I try to get more than one secured credit card?
A. Not just for the sake of filling your wallet, but I like to see people rebuilding their credit have at least three accounts that report to the credit bureaus. For those who have nothing else or only one account reporting to the credit agencies I would advocate two secured credit cards. Further, in those cases I'd suggest one Visa and one MasterCard. For those who already have a debit card and only want one Visa or one MasterCard, if you ever plan to travel internationally, get the other so you have both when abroad.
Q. Do the secured credit cards operate differently once I have them?
A. Not really between Visa and MasterCard, but let's talk about two things that might make a difference to you that you need to look at before you apply. First make sure the bank issuing the credit card reports your payments to the credit bureaus.
Q. What! You mean some credit cards do not forward data to the credit agencies?
A. Right, and almost everyone who needs a secured credit card will want the reporting to help them improve their credit score. Do not assume a secured credit card reports your payments unless you have double checked it before the application.
Q. If my credit score does improve can I get my credit line increased or get all or part of my savings account back?
A. Once again, if this item ranks high on you list of keys parts of the secured credit card you will need to look extra hard. Some secured credit cards offer such a feature while many do not. Most secure credits cards have a design where your saving account stays in place with your credit limit equaling the savings balance until you close the credit card account and subsequently get your savings back, that's it. Other secured credit cards can increase your credit line or convert you card to an unsecured credit card at some point in the future.
Q. Wouldn't the consumer always want a card that can convert from a secured credit card to an unsecured credit card?
A. Not really. Once you have established good credit you can likely find an unsecured credit card offering much better terms than the converted old secured credit card. Just get a new card with better terms and close the old secured credit card account.
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